N.C. unemployment plan hits business, beneficiaries

By Web Exclusives

Published: Tuesday, December 11, 2012 at 07:21 AM.

By GARY D. ROBERTSON

Associated Press

North Carolina legislators unveiled a long-awaited proposal Wednesday to more quickly pay off the state's nearly $2.5 billion unemployment benefit debt through higher business taxes and scaled back payments to future jobless workers.

The plan presented in a General Assembly study committee would wipe from the books the borrowing from the federal government in 2015, or three years earlier than if nothing occurs. The proposal also is designed to replenish the state's unemployment trust fund after the Great Recession cleaned it out and revealed what Republican legislative leaders called a host of troubles.

North Carolina legislators unveiled a long-awaited proposal Wednesday to more quickly pay off the state's nearly $2.5 billion unemployment benefit debt through higher business taxes and scaled back payments to future jobless workers.

The plan presented in a General Assembly study committee would wipe from the books the borrowing from the federal government in 2015, or three years earlier than if nothing occurs. The proposal also is designed to replenish the state's unemployment trust fund after the Great Recession cleaned it out and revealed what Republican legislative leaders called a host of troubles.

North Carolina is among nearly 20 states that still owe the federal government when unemployment insurance tax payments by businesses failed to keep up with benefits from the flood of applicants starting four years ago. North Carolina's balance is the third highest in the country behind California and New York.

Employers and those laid off in the future will share the burden of paying the debt and building up the system, a key negotiator said. The proposal would bring the state's trust fund balance to $2.5 billion by 2021, according to projections from legislative analysts.

"We have to make the system solvent. Otherwise, it will fail everyone in the state," said Sen. Bob Rucho, R-Mecklenburg, co-chairman of the Revenue Laws Study Committee. "What we're going to try to do is ... to make sure that everybody is helping provide the solvency of the system."

But activists for low-income workers told legislators reducing benefits would harm the very people for whom the system is designed to help in difficult times. Under the proposal, the maximum weekly benefit for workers would fall from the current $525 to $350, while the maximum number of weeks a jobless claimant could receive state benefits would drop from 26 weeks to 20 in periods of the highest unemployment

A new sliding scale would be created for minimum and maximum benefits based on the state's unemployment rate. In the best possible economy — unemployment rates of 5.5 percent or less — benefits would range from five to 12 weeks, for example. Benefit changes would apply starting next July 1 to the future unemployed.

Lawmakers backing the plan say the benefit changes bring North Carolina's levels more in line with surrounding states. Cutting benefits will reduce the amount of money being paid out but it won't solve the real problem of people being out of work, said Bill Rowe, advocacy director at the North Carolina Justice Center. The state's unemployment rate was 9.3 percent in October.

"To shorten the number of weeks that they can claim is like kicking your most vulnerable people while they're down," said Bridgette Burge, 39, of Raleigh, who spoke against the proposal at the meeting. Burge, who is married with two children, is an unemployed social services worker who has received state and federal benefits this year.

Many attribute the unemployment debt problem to a series of employer tax cuts in the 1990s. The tax cuts weren't reversed after the last recession a decade ago, and people stayed jobless longer.

Business-oriented groups at the meeting praised committee members for attempting to fix a problem that's been discussed for at least two years, although the solution requires higher taxes for companies.

"Business knows that the road to solvency is going to involve higher taxes," Gary Salamido with the North Carolina Chamber told committee members, adding that "in comprehensive reform, business is willing to do its part."

Without changes, federal unemployment taxes required of state businesses to pay off the debt will keep growing annually by $21 per employee through 2018, choking further the ability of companies to create jobs, according to business leaders seeking a quicker solution to erase the debt.

By paying off the debt in 2015, projected subsequent higher federal taxes will be canceled. The proposal also would keep in place the current 20 percent state unemployment tax surcharge on all business until the state's trust balance exceeds $1 billion and require that surcharge to now be paid by both nonprofit groups and local governments.

The bill also increases slightly the range of tax rates an employer must pay into the system based on its history, number of layoffs and other factors. The top-rated businesses could no longer get a zero percent rate — it would go up to 0.06 percent on the first $21,000 of a worker's wages. The maximum rate would increase from 5.7 percent to 5.76 percent.

The 54-page bill also would tighten benefit qualification rules. It doesn't direct that bonds be issued to pay off the federal debt more quickly. State Treasurer Janet Cowell advised legislators against the idea because of the debt's large size and relatively small savings it would generate.

The proposal received preliminary approval in the study committee. Rucho said he didn't expect significant changes to the bill, which still would have to be introduced in the Republican-led Legislature when the new session begins in January and pass both chambers. GOP Gov.-elect Pat McCrory has said fixing the debt problem would be an early priority.